How valuable is a bachelor’s degree? Less so than it used it be, says a new report, but the ultimate value depends on a number of factors, including tuition cost and college major.
A trio of researchers led by Liang Zhang of New York University focused on the internal rate of return (IRR) for students who graduated with a bachelor’s degree between 2009 and 2021, using data from the American Community Survey (ACS). 2009 was the first year ACS began collecting information on the majors in which students completed degrees. They limited the sample to individuals who were born in the United States and were eighteen to sixty-five years old, held either a high school diploma or a bachelor’s degree as their highest level of education, were not currently enrolled in school, and had positive earnings. Applying these criteria yielded a final sample of 5.8 million individuals with an even split of 2.9 million college graduates and 2.9 million high school graduates as the comparison group. The IRR calculation considers both the lifetime costs (e.g., tuition and forgone earnings) and benefits (e.g., higher earnings) of college to graduates by discounting future costs and benefits to their present value. One issue the researchers touch on is a potential mismatch between the ability levels of the two groups of students (A+ high schoolers vs. C- college grads). Without this specific data, they use “estimates from the existing literature” to adjust for the possible selection bias. Inexact, but at least on their minds.
First and foremost, they find that college degree completion still provides a solid return on investment compared to students with just high school degrees. Both median and mean earnings show an IRR between 9 and 10 percent. Male college graduates get a lower return than their female counterparts, but the difference is around three quarters of a percent. The analysts do note that similar research in the late 1980s showed a larger IRR. The researchers suggest this likely reflects both the increase in college costs in the intervening years and the flattening of wage growth generally following the Great Recession.
Additionally, IRR varies significantly depending on the college major a student pursues. Engineering and computer science majors are at the top (more than a 13 percent IRR)—with business, health, and math and science close behind. At the lower end are education, humanities, and the arts (below an 8 percent IRR). The researchers note a strong increase in degree completion among those higher-level majors over the timespan of their analysis, despite the overall reduction in college enrollment since 2010, which helps buoy the overall IRR findings.
The limitations noted by the researchers are small but important—including no differential impacts calculated based on the selectivity of colleges attended or of tax-related policies that can decrease earnings or reduce the final cost of college attendance. More important is the fact that the labor market of tomorrow may not follow the historical trends on display here. Ongoing technological advancements in robotics and artificial intelligence, as well as the increase in career-technical education opportunities in the middle and high school years, have the potential to upend all employment sectors in unpredictable ways.
As clear as these data are about the declining but still quite positive return on a college degree even as recently as 2021, the future for today’s degree earners is nowhere near as crystalline as that hindsight.
SOURCE: Liang Zhang, Xiangmin Liu, and Yitong Hu, “Degrees of Return: Estimating Internal Rates of Return for College Majors Using Quantile Regression,” American Educational Research Journal (March 2024).
